Fraudulent mobile loan apps: The dark debt trap

Fake loan apps advertised on social media platforms are leading to a surge in criminal activities. Victims, often downloading these apps without proper research, are harassed and scammed out of lakhs of rupees. Despite warnings from the police to people, these apps continue to be popular 

Updated - July 14, 2023 01:07 pm IST

Published - July 13, 2023 08:56 pm IST - Bengaluru

National Crime Records Bureau data show that Bengaluru has recorded the highest number of cybercrimes among metro cities in India. In 2021, as many as 6,423 cases were registered.

National Crime Records Bureau data show that Bengaluru has recorded the highest number of cybercrimes among metro cities in India. In 2021, as many as 6,423 cases were registered.


Ramesh Reddy (name changed to protect privacy), 35, borrowed ₹2 lakh for a couple of weeks from a money-lending app a month ago to tide over a crisis in his business. He thought all he had to pay back was the principal sum and an interest of 20%. He repaid the loan about 15 days later on a predesignated date. “I was unprepared for what came next,” he says.

When Mr. Reddy flicked on his screen following a WhatsApp notification a day after he repaid the loan, he was shocked. The message said that ₹3 lakh was due and needed to be paid immediately. An executive of the online lending company began to message him. Mr. Reddy responded, “There may be a slight misunderstanding, as the money has already been repaid.” The executive messaged back, saying he had more to pay.

As the argument continued, Mr. Reddy claimed the executive posted a morphed obscene picture of him. “He said he would forward it to my friends and family members if I declined to pay,” says Mr. Reddy, who has still not recovered from the experience. Fearing for his reputation, Mr. Reddy paid the cash as he had received his share of the money from his business. The threats continued until the “lender” extorted ₹25 lakh.

He broke fixed deposits and withdrew money from mutual funds to make the payment. When his account hit zero and he could pay no more, the “executive” sent the photos to his contact list. “I am bankrupt,” he says, unsure if he will ever recover from the trauma and financial loss.

On July 12, a 22-year-old engineering student, Tejash Nayar ended life, alleging harassment by money lending apps. He had borrowed ₹30,000. With interest and late fee charges, the total amount to be repaid was around ₹46,000. The family has now filed a complaint at Jalahalli police station. In the death note, he wrote, “Sorry mom and dad for whatever I did. But I have no other choice other than this. I am unable to pay loans that are there in my name and this is final decision. Thank You. Good Bye.”

Flood of apps

Loan apps advertised on social media platforms, like Facebook and Instagram, are an easy way to get money quickly and without the due diligence that banks go through. Once a person downloads an app or does a Google search for one, the algorithm kicks in, and the person’s feed is flooded with more such apps.

When this reporter clicked a link to check, Facebook bombarded at least 20 apps in one hour while scrolling. The volume of bombardment is such that it entices the user to try at least once. The police say unless Facebook frames a policy to check these apps, the erroneous websites will continue to advertise prying on vulnerable.

Bengaluru police are finding that these apps, which many people download without research and verification, have cost victims lakhs and, in some cases, crores of rupees. The modus operandi is always the same: with a threat of reputation loss.

Bengaluru tops list

Loan app fraud is a predominant mode of targeting the gullible in the tech-savvy city. National Crime Records Bureau (NCRB) data show that Bengaluru has recorded the highest number of cybercrimes among metro cities in India. In 2021, 6,423 cases were registered.

Karnataka recorded the highest number of cybercrimesin 2019, with 12,020 cases. It stood second in 2020 (10,741) and 2021 (8,136) after Uttar Pradesh.

In October 2022, the Enforcement Directorate (ED) cracked down on Chinese loan apps and seized about ₹78 crore from accounts attached to the apps, based on 18 first information reports filed by the Bengaluru City Crime Branch. The ED sleuths raided multiple offices of these apps and continued their investigation.

Popularity of the apps

In July 2022, a 55-year-old bank employee died by suicide in the city. In his suicide note, he listed 40 instant loan apps and accused the companies running the apps of harassment. He had urged both Bengaluru and Maharashtra police to ban these apps. The police speculate that it could be due to the extensive ease of use of digital payment apps. Even street vendors in the city are comfortable with apps and online transactions.

This “online extortion syndicate”, as the cyber police call it, has lured a large number of people. Over the last three years, Bengaluru city police have registered over 1,000 cases. The modus operandi is such that it discourages victims from reporting the crime for fear of reputation loss, which implies that the victims far outnumber the cases registered.

A few weeks ago, Bengaluru East Cybercrime, Economic Offences, and Narcotics (CEN) police booked 15 apps that extorted ₹2.6 lakh from a 43-year-old businessman in the city. The apps booked are Easy Money Loan App, Salarypls, Easy Loan, Cash Me, Pocket Me, Get Rupee, Incash, Money, Rainbow Money, Magic Loan, Homecash Delhi Credit, Shinny Loan, Goo Money, Cool Rupee Ltra, and Naan Rupee Loan.

With Google offering them on its app store for download, people trust them as legitimate lenders. Taking advantage of the trust gained by genuine lending applications, the fraudsters first float their app and place it on both Play Store and App Store.

Police action

A police official, who removed 250 applications from the Play Store in the last two years by obtaining court orders, explained the modus operandi: “After downloading, the application requests access to multiple files like gallery, contacts, and others on user’s phone. The app promises loans without any security, and that is the catch. Trusting mindlessly, users grant access and provide them with Aadhaar, PAN, and bank account details. The app says it levies an interest between 15% and 20%.”

A police officer who probed one such case said the money was transferred to eight different accounts based out of eight states. “The money was later laundered through cryptocurrency apps based out of China,” he said.

The officer said he had frozen 770 accounts with the help of banks. The criminals use virtual accounts for transactions. A virtual account is a digital payment method through an account that is created virtually for each customer. To make payments, customers will be referred to their virtual accounts. A virtual account consists of a unique customer ID number.

The criminals transfer money from one account to another to confuse the investigators and create obstacles. As these accounts have vast sums of deposits like ₹50 crore, only the Enforcement Directorate can probe the accounts, a time-consuming process. By the end of the probe, if the account were not frozen, the money would have vanished. The officer confessed that the recovery rate is abysmal. Of the ₹90 crore-worth accounts frozen, he could recover only ₹16 lakh. In Bengaluru, at least five cases are being filed in cyber police stations in a week that involve loan apps, said the officer.

Workers unaware of criminal nature

The people working for these fraudulent sites work from home and appear unaware of their work’s criminal nature.

Pravin Kalaiselvan, Director of Chennai-based Save Them India Foundation, who works with cybercrime victims and police, said, “I spoke to at least eight employees of Wow Rupee app in Bengaluru and found that they were offered work from home and never met the employer physically.”

The workers were taking orders from people claiming to be sitting in China. He said the men were giving directions to morph pictures of the borrower and send them to the contact list. “The workers were also receiving salary and incentives on reaching the target. The workers claimed they did not know they were part of an extortion racket, said Mr. Kalaiselvan.”

A senior police officer said the workers are hired online from different states, and those who know the local language communicate with the borrowers. The workers send the UPI address to the customers over which they have no control. He said this is a very systematic operation, and unless Google has a strict policy for placing apps, this may be tough to control.

Check authenticity of app

The police say borrowers must check whether the app (or the company running the app) is associated with the National Development Finance Corporation (NBFC) or financial institutions registered with the Reserve Bank of India. Financial institutions not approved by the RBI cannot lend money.

Akshay Mehrotra, Co-Founder and CEO of Fibe (Formerly EarlySalary), the app that provides instant loans, personal loans, and salary advances, said the RBI, in 2022, had framed new rules. The RBI regulates digital lending apps, and the companies are linked with the NDFC or financial institutions. The RBI policy protects the interests of both lenders and borrowers. The apps provide these details, and these can be verified, he said.

Harini Girish, Director, Proaxis Solutions, a Bengaluru-based cyber security company, said users would do well to check reviews and also check RBI websites to look for registered companies. “There is also a possibility of duplicating websites of prominent digital lending companies and this can also be verified in google,” she said, advising extra caution every step of the way.

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